The Ann Arbor City Council took action Tuesday night to renew its $75,000 annual contract with economic development group Ann Arbor SPARK for business attraction and retention services.

Although SPARK has a regional mission, the contract specifies that services will be provided to the city with specific deliverables, including the attraction and retention of companies that add or maintain taxable value, and add or retain jobs.

Council Member Chuck Warpehoski, D-5th Ward, also won support for an amendment directing the city administrator to work with SPARK to develop improved metrics and reporting systems to strengthen council's ability to monitor contract performance.

The 8-3 vote to approve the contract comes after months of debate about the value of SPARK to the city of Ann Arbor.

In a memo shared with council in June, SPARK reported that it had worked on 116 business retention, expansion or attraction projects in Ann Arbor since 2006, resulting in $213 million in investment and more than 4,300 jobs. During that time, the city invested a total of $555,000 in general fund support.

Last year, the city contributed $75,000 to support business retention, expansion and attraction projects. SPARK reported it worked on 14 projects within the city that resulted in $21 million in investment and 752 jobs.

Before the vote on the contract Tuesday night — approved over dissent from Mike Anglin, Jack Eaton and Sumi Kailasapathy — the council voted 7-4 in support of a 15-year extension of the Ann Arbor/Ypsilanti SmartZone through a new collaboration with Adrain/Tecumseh as a "satellite SmartZone" in Lenawee County.

File photo | The Ann Arbor News

The Ann Arbor/Ypsilanti SmartZone — one of more than a dozen tax-capturing districts like it throughout the state — was created in 2001 and helps fund SPARK activities.

Interchangeably referred to as the Local Development Finance Authority or LDFA, the SmartZone generates about $2 million in revenue annually.

The purpose of the SmartZone is to help facilitate the commercialization of research products being developed at the University of Michigan and Eastern Michigan University, and the development of private high-tech enterprises.

The LDFA is funded through a tax-increment financing district that is equal to the Downtown Development Authority district in Ann Arbor and a portion of the DDA district in Ypsilanti. It captures a portion of taxes committed to schools, and then the state is expected to repay the local school district so its funding remains whole.

"The SmartZone is funded from the state of Michigan, and without the SmartZone, these monies would otherwise not be received locally," the city states on its website.

The Ann Arbor/Ypsilanti SmartZone is in direct competition with other SmartZones throughout the state for one of three 15-year extensions that the MEDC is permitted under law to approve. Without an extension, the SmartZone expires in 2018. If it doesn't get a 15-year extension, it could get a five-year extension.

Council Member Stephen Kunselman, D-3rd Ward, joined Anglin, Eaton and Kailasapathy in opposing the SmartZone extension resolution, raising concerns that it takes money away from local schools through capture of school millage funds.

Tom Crawford, the city's chief financial officer, argued the impact of the SmartZone on local schools has been negligible because the state makes up for the captured amounts. According to Crawford, the LDFA was designed so it wouldn't adversely impact the local school district, and there was no negative impact from 2002 to 2013.

In the last fiscal year, he said, the personal property tax capture "became slightly positive," resulting in local schools receiving $1,430 less than they would have had the SmartZone not existed — but he noted that's a small fraction of a percent of the school district's budget. Going forward, Crawford said, it's projected there will be no negative impacts due to new exemptions on commercial personal property.

"I'm pretty convinced that local schools are not hurt by the LDFA," said Mayor John Hieftje, who thanked Crawford for his research.

After more than an hour of debate and discussion Tuesday night, Hieftje said the council seemed to be looking at the issue backwards. He disputed the arguments made by some that the city would be fine without SPARK and the LDFA or that jobs would continue to come to Ann Arbor just because of U-M.

"We need a private economy in this town — not just a university economy," Hieftje said. "But as we see those companies grow, all boats are lifted. The tax revenues are going up. It's not just within the TIF zone. Those people are buying houses, they're starting perhaps another company, they're doing things in the community."

The LDFA is governed by a nine-member board of directors — six of whom are appointed by the Ann Arbor City Council and three of whom are appointed by the Ypsilanti City Council. The LDFA operates under a set of bylaws that were initially approved by the Ann Arbor and Ypsilanti City Councils.

Both councils previously adopted resolutions that affirmed continuing the LDFA to facilitate the development and support of new and existing tech businesses. Both councils took action again Tuesday night in favor of striking an agreement with Adrian/Tecumseh for a satellite SmartZone, which is required for a 15-year extension.

The LFDA met and selected Adrian/Tecumseh as the recommended satellite SmartZone on Aug. 21.

Ann Arbor officials said the proposed satellite zone includes both college/university communities, as well technology-focused businesses, providing the potential for regional partnerships. In addition Adrian/Tecumseh's technology focus includes agriculture, which is an area of focus for the state of Michigan.

Kunselman said it seemed greedy that Ann Arbor, which has U-M as its economic engine, would compete against other communities in Michigan like Detroit and Kalamazoo for one of the few 15-year SmartZone extensions. He said other communities need it more than Ann Arbor.

Hieftje argued Ann Arbor might be the only city in Michigan that can compete with economic hubs like Palo Alto and Raleigh-Durham.

"We're talking about lifting Ypsilanti," Hieftje added. "And it bothers me when somebody says, 'Oh, some TIF dollars might go to Ypsilanti.' I think one of the very best things that could happen to Ann Arbor is to have an improved and better Ypsilanti. It would pay dividends for us for years and years and years."

Hieftje added that he thinks SPARK and the LDFA have made a difference in changing the culture in Ann Arbor with regard to the university and startup businesses.

"The university did not used to cooperate in putting their technology to market here in the local community," he said. "They do now, because we are a partner."